Category: Equitablog

Should-Read: Simon Wren-Lewis: Misrepresenting Academic Economists

Posted on by Brad DeLong

Should-Read: I want to talk about “mainstream economists”—whatever that means. Simon Wren-Lewis wants to talk about “academic economists” and to (sharply?) distinguish them from “City economists”. And he wants to talk about after “the reason for the Eurozone crisis had been resolved by Paul De Grauwe”. That is—I think—most of why we seem to disagree:

Simon Wren-Lewis: Misrepresenting Academic Economists: “Brad DeLong [says]…

…The fact is that the “mainstream economists, and most mainstream economists” who were heard in the public sphere were not against austerity, but rather split, with, if anything, louder and larger voices on the pro-austerity side…

The dodge, and I think it is a pretty good dodge, is that politicians and a good part of the media choose the economists they publicise…. How were people outside economics… to know that particular [pro-austerity] academic economists were unrepresentative of the majority?… I’ve argued that the majority of academic macroeconomists were always against austerity, particularly once the reason for the Eurozone crisis had been resolved by Paul De Grauwe, but the evidence I use to back this up is piecemeal and indirect (see here, pages 3 to 4)…. I think the experience with austerity and Brexit suggests it is time for national economics associations (like the RES or AEA) to start representing the opinions of economists by conducting such polls of their members under their own initiative…

But there are other things we seem to disagree on as well. First, who are these “City economists”? And why does Simon dismiss them from the academic “mainstream”? Simon:

We have a particular problem… the influence of economists working in the City… some wise and experienced… but… many with limited expertise and sometimes fanciful views.. [whose] main job is to keep their firm’s clients happy…. Their views tend to reflect the economic arguments of those on the right: regulation is bad, top rates of tax should be low, the state is too large, and budget deficits are a serious and immediate concern. And part of their job is publicity, so they are readily available when the media needs a reaction or a quick interview…. Large sections of the print media have a political agenda. Unfortunately the remaining part, too, often seeks expertise among City economists who have a set of views and interests that do not reflect the profession as a whole…

I have also talked about the influence of City economists in the reporting of macroeconomic issues, which is obviously true on both sides of the Atlantic. The absence of a clear locus for received academic wisdom on fiscal policy, in contrast to monetary policy and central banks, could be important…

Most of the day-to-day macroeconomic news is about short-term market movements, and the obvious source for comment are economists working in the City. Ask an academic about why sterling moved yesterday or the latest retail sales figures, and they will probably say they have no idea…. Most of the time, therefore, academics are of little help to economic journalists. As a result, those journalists tend to establish contacts with City economists…. The problem is that City economists are not the best source for advice on major macroeconomic policy issues, like what to do with the deficit…. What we often get reported instead is what “the market” thinks… code for the speculation of City economists who have little policy expertise and a set of biases that come from the financial sector (deficits are bad, low taxes are good). City economists also have an interest in hyping up the unpredictability of the markets, and their unique role in being able to interpret the market’s fickle moods. The market is like some unpredictable god, and City economists are the high priests who can tell whether their god likes a particular policy…

Second, some of what is going on is that the U.K. press is worse than the U.S.: The U.K. press is, to a large degree, simply Fox News. The U.S. press is, to a large degree, simply “opinions of shape of earth differ”. Thus the problems he sees are more media-centered than the problems I see.

But I do think that there is a third thing: I think that he massively underestimates that fraction of even his academic economists who in 2009-11 were thinking: monetary policy is powerful, we are going to get a V-shaped recovery—and quickly—thus the stimulative need for expansionary fiscal policy is small, and structural deficits at full employment are very damaging and very hard to eliminate.

Should-Read: Harry Kitsikopoulos: The 18th Century Age of Steam

Posted on by Brad DeLong

Should-Read: Harry Kitsikopoulos: The 18th Century Age of Steam: “Using a large amount of data on fuel consumption rates… concludes that in an era of practical tinkerers…

…British engineers did get better through a classic process of ‘learning-by-doing’, but… only… after an initial stage of adjustment…. The author notes that Britain was a very unlikely candidate for the invention of steam engines…. French and Italians… first rediscovered, translated and published the ancient texts of Hero of Alexandria on steam power; they also discovered the existence of vacuum in nature…. But Britain had two advantages: first, a divorce-obsessed king who detached the island from the Catholic dogma and its alliance with the Cartesian epistemological paradigm, both denying the existence of vacuum…. Lay landlords… [were] far more keen on solving the water drainage problem plaguing the mining industry in its drive to exploit mineral wealth. Britain was also fortunate in… [that] it was relatively backward in terms of mining technology!… Germany and Liège used a technology that resolved the drainage problem, Britain failed to imitate them, hence forcing itself to seek alternative solutions, thereby leading to the invention of the steam engine… 

Must-Read: Paul Krugman (2015): Nobody Said That

Posted on by Brad DeLong

Must-Read: Paul Krugman (2015): Nobody Said That: “Imagine yourself as a regular commentator on public affairs…

…The Obama stimulus, you declare, will cause soaring interest rates; the Fed’s bond purchases will ‘debase the dollar’ and cause high inflation; the Affordable Care Act will collapse in a vicious circle of declining enrollment and surging costs. But nothing you predicted actually comes to pass. What do you do? You might admit that you were wrong, and try to figure out why. But almost nobody does that; we live in an age of unacknowledged error. Alternatively, you might insist that sinister forces are covering up the grim reality…. Finally… you can pretend that you didn’t make the predictions you did. I see that a lot when it comes to people who issued dire warnings about interest rates and inflation….

Where I’m seeing it most, however, is on the health care front…. Go back to 2013… or early 2014…. Several months into 2014 many leading Republicans—including John Boehner, the speaker of the House—were predicting that more people would lose coverage than gain it…. Instead, the new line—exemplified by, but not unique to, a recent op-ed article by the hedge-fund manager Cliff Asness—is that there’s nothing to see here: ‘That more people would be insured was never in dispute.’ Never, I guess, except in everything ever said by anyone in a position of influence on the American right. Oh, and all the good news on costs is just a coincidence….

Refusing to accept responsibility for past errors is a serious character flaw in one’s private life. It rises to the level of real wrongdoing when policies that affect millions of lives are at stake.

Plus:

Paul Krugman: Remembrance of Death Spirals Past: “Kenneth Thomas has a nice post about how those pooh-poohing the… Affordable Care Act…

…are moving the goalposts. The latest, as he points out, is this absurdity [from Cliff Asness]:

If we predict that something good will happen as a result of a new law, and that good thing happens, it doesn’t count as proof that the law was good.

But the question isn’t just whether the law is good; it is who has some credibility. So far, enrollment is growing more or less in line with the projections of supporters… [who] are looking pretty good on the prediction front…. Right-wing ‘experts’ were predicting a death spiral in which only a small number of sick people would sign up, and premiums would soar. This didn’t happen. So, of course, conservatives have ditched the people who got this so completely wrong, and started listening to those who got it right. OK, I know, sick joke.

Who is he talking about? John Cochrane, among others:

John Cochrane (December 2013): What To do When Obamacare Unravels: “The unraveling of the Affordable Care Act presents a historic opportunity for change….

…Next spring [2014] the individual mandate is likely to unravel when we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance. The employer mandate and ‘accountable care organizations’ will take their turns in the news. There will be scandals. There will be fraud. This will go on for years…

As you may have noted, there was no adverse-selection meltdown of the ObamaCare exchanges in the spring of 2014–no more than there had been an adverse-selection meltdown of the Massachusetts RomneyCare exchange when it was implemented in the second half of the 2000s.

And what has been Cochrane’s reaction to the failure of his confident prediction? The closest to an acknowledgement of error I can find is:

…Long laws and vague regulations amount to arbitrary power. The administration uses this power to buy off allies and to silence opponents. Big businesses, public-employee unions and the well-connected get subsidies and protection, in return for political support. And silence: No insurance company will speak out against ObamaCare or the Department of Health and Human Services…

Shorter John Cochrane: Never mind that all my predictions were false. ObamaCare is a disaster. And insurance companies are not happy with it–they have just been intimidated by fear that Obama will somehow come after them if they speak ou about what a disaster ObamaCare is for them.

Perhaps in a decade, there will be a column by Cochrane pretending that he always knew that on net ObamaCare was profitable for insurance companies—which would rather be in the business of making money by efficiently processing claims than by exploiting adverse selection.

Perhaps not.

Should-Read: Noah Smith: Thoughts on Will Wilkinson’s Post on Cities

Posted on by Brad DeLong

Should-Read: Noah Smith: Thoughts on Will Wilkinson’s Post on Cities: “Will Wilkinson, one of the greatest essayists working today…

…a wonderful article… two competing visions…. Here are some great excerpts:

[Trump] connected with these voters by tracing their economic decline and their fading cultural cachet to the same cause: traitorous “coastal elites” who sold their jobs to the Chinese while allowing America’s cities to become dystopian Babels, rife with dark-skinned danger — Mexican rapists, Muslim terrorists, “inner cities” plagued by black violence. He intimated that the chaos would spread to their exurbs and hamlets if he wasn’t elected to stop it… 

To advance his administration’s agenda, with its protectionism and cultural nationalism, Trump needs to spread the notion that the polyglot metropolis is a dangerous failure… 

When Trump connects immigration to Mexican cartel crime, he’s putting a menacing foreign face on white anxiety about the country’s shifting demographic profile… 

Suppose you think the United States — maybe even all Western civilization — will fall if the U.S. population ever becomes as diverse as Denver’s. You are going to want to reduce the foreign-born population as quickly as possible, and by any means necessary. You’ll deport the deportable with brutal alacrity, squeeze legal immigration to a trickle, bar those with “incompatible” religions. 

But to prop up political demand for this sort of ethnic-cleansing program — what else can you call it? — it’s crucial to get enough of the public to believe that America’s diversity is a dangerous mistake. 

I think this is all pretty much true… but… I think he glosses over a few important things…. It’s not really cities that are doing well, but certain kinds of cities, suburbs, and towns… with high levels of human capital…. It’s not city vs. country, it’s innovation hubs vs. old-economy legacy towns. Also, Will depicts cities as diverse, tolerant places. That’s true in some ways…. But in some important ways the picture is wrong. Many American cities remain extremely segregated, especially between black residents and others. Chicago is a thriving, diverse, fun, relatively safe metropolis-unless you go to the poor black areas…. So I’d focus less on the urban-suburban-rural distinction, and more on the division between new economy and old. But anyway, I really like Will’s message at the end of his post:

Honduran cooks in Chicago, Iranian engineers in Seattle, Chinese cardiologists in Atlanta, their children and grandchildren, all of them, are bedrock members of the American community. There is no “us” that excludes them. There is no American national identity apart from the dynamic hybrid culture we have always been creating together. America’s big cities accept this and grow healthier and more productive by the day, while the rest of the country does not accept this, and struggles. 

In a multicultural country like ours, an inclusive national identity makes solidarity possible. An exclusive, nostalgic national identity acts like a cancer in the body politic, eating away at the bonds of affinity and cooperation that hold our interests together.

That’s exactly the message we need to be repeating. It’s the only thing that can hold this country together. Either America succeeds as a polyracial nation, or it doesn’t succeed at all.

Weekend reading: “Looking to Alaska” edition

Posted on by Nick Bunker

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

The possibility of an implementing a universal basic income in the United States has become a trendy idea in recent years with experiments abroad gaining attention. But Heather Boushey notes that the United States has experience with the idea: in Alaska.

With fewer new firms being created in the United States, economists might expect that the difference in productivity across firms would decline as less productive firms close and more productive ones expand. But that’s not what’s happening.

Equitable Growth released a new working paper this week from University of Massachusetts Amherst economist Arindrajit Dube. The paper looks at how changes in the minimum wage change the distribution of family incomes.

Austin Clemens writes about a new data series that tries to solve a problem with almost all measures of income inequality—they don’t fully capture all the income in the U.S. economy.

Links from around the web

David Weil, an economist at Boston University, has documented the rise of the “fissured workplace” as companies outsource more and more jobs. Based on his prior experience as the Administrator of the U.S. Department of Labor’s Wage and Hour Division, Weil writes about how policy can take this trend. [hbr]

“The U.S. economy’s ability to keep finding new ways to grow, and keep spawning world-beating corporations that lead that growth, is a remarkable thing,” writes Justin Fox at Bloomberg View. “But it clearly hasn’t been enough to keep living standards from declining for large swaths of the population.” Fox looks at how the United States is getting richer and sicker. [bloomberg view]

Low-wage workers have significantly increased their working hours since the late 1970s. But that increase hasn’t been felt equally across all those workers. Gillian B. White reports on a new study that show hours for low-wage black workers have increased much more. [the atlantic]

The Net International Investment Position of the United States—the difference between the value of U.S. financial assets that foreigners own and the value of foreign financial assets that Americans own—is a deficit of about 45 percent of GDP. Joseph E. Gagnon shows how the NIIP is projected to grow and how the adjustments after such an increase could be severe. [piie]

U.S. cities seem to have become the center of all economic activity in the United States as economic activity consolidates in urban areas. But has that actually happened? Xenocrypt isn’t so sure. [medium]

Friday figure

Figure from “The once and future measurement of economic inequality in the United States” by Austin Clemens

Must-Read: Ross Douthat: Is Obamacare a Lifesaver?

Posted on by Brad DeLong

Must-Read: The last, italicized, clause in the quote from Ross Douthat below is a lie:

Ross Douthat: Is Obamacare a Lifesaver?: “Now that the Republican Party has beclowned itself on health care… Obamacare repeal… in rubble…

…every G.O.P. policy person who ever championed a replacement plan is out wandering in sackcloth and ashes, wailing, “The liberals were right about my party, the liberals were right about my party,” beneath a harsh uncaring heaven… now, in these hours of right-wing self-abnegation, it’s worth raising once again the most counterintuitive and frequently scoffed-at point that conservatives have made about Obamacare:

It probably isn’t saving many lives.

One of the most powerful arguments in the litany that turned moderate Republican lawmakers to jelly was that they were voting to “make America sick again”…. Tens of thousands of people, Democrats warned, would die if Paul Ryan’s stingy replacement took its place…. This argument was still most likely false….. The link between health insurance and actual health has always been a lot murkier than most champions of universal coverage admit… little evidence that giving people insurance actually makes them healthier. Recent data… is mixed: A study of Mitt Romney’s Massachusetts insurance expansion showed health benefits for the newly insured… but a study of Oregon’s pre-Obamacare Medicaid expansion found that the recipients’ physical health did not improve…

Look at this summary table from the Oregon Medicaid Study:

Oregon Medicaid Study Summary Table
  1. The bottom red circle tells us: relative to the control group, an extra 5% of those who won the Medicaid lottery are taking diabetes meds.

  2. The top red circle tells us: relative to the control group, 1% fewer of the “got Medicaid” group have elevated blood glucose levels.

12% rather than 6% being treated for diabetes; 4% rather than 5% with high glucose levels. Both treatment likelihood and health indicators are better for the “got Medicaid” group.

That is a clinically-significant improvement in the health of the population that got on Medicaid: for first-line anti-diabetes drugs to knock about 1/5 of those with the diagnosis back into the normal range is what you would expect.

The problem is the sample size: only 6000. In a population that small, statistical noise means that you could not reject the hypothesis that the effect was four times as large–that the drugs knocked 4% of the “got Medicaid” group into the healthy range. But also if you started out believing that diabetes drugs were counterproductive—that they caused blood glucose levels to increase—you could not reject that hypothesis either.

The proper way to describe this is that while the effects on emotional health and financial stability were as expected clinically and were statistically significant, the effects on blood glucose (and hypertension, and high cholesterol) were as expected clinically but were not statistically significant.

If Douthat had said that the improvements in physical health were not statistically significant, I would accuse him of misleading his audience by not also noting that the improvements in physical health were in line with clinical expectations for treatment success.

But Douthat claims, instead, that: “a study of Oregon’s pre-Obamacare Medicaid expansion found that the recipients’ physical health did not improve”. That is simply a lie. I don’t know whether he is knowingly or unknowingly spreading this lie. But his ultimate source for the claim was looking at this table. And lied.

Is it too much to ask the New York Times to at least pretend to care about quality control here?

Sluggish Future: No Longer Fresh Over at Finance and Development

Posted on by Brad DeLong
Secular Stagnation

Over at Finance and Development: Sluggish Future: You are reading this because of the long, steady decline in nominal and real interest rates on all kinds of safe investments, such as US Treasury securities. The decline has created a world in which, as economist Alvin Hansen put it when he saw a similar situation in 1938, we see “sick recoveries… die in their infancy and depressions… feed on themselves and leave a hard and seemingly immovable core of unemployment…” In other words, a world of secular stagnation. Harvard Professor Kenneth Rogoff thinks this is a passing phase—that nobody will talk about secular stagnation in nine years. Perhaps. But the balance of probabilities is the other way. Financial markets do not expect this problem to go away for at least a generation… Read MOAR at Finance and Development

My Draft: You are reading this right now because of the long, steady decline in safe interest rates at all maturities since 1990.(1)

In the United States, we have seen declines in short-term safe interest rates from 4% to -1.2% on the real side and from 8% to 0.5% on the nominal side. And we have seen the decline in long-term safe interest rates from 5% to 1% on the real side, and from 9% to 3% on the nominal side. The elusive Wicksellian “neutral” rate of interest—that rate at which planned investment equals desired full-employment savings—has fallen by more: the economy in 1990 had no pronounced tendency to fall short of full employment; the economy today has.

An economy suffers from “secular stagnation” when the average level of safe nominal interest rates is low and so crashes the economy into the zero lower bound with frequency. Thus, in the words of Alvin Hansen (1939): “sick recoveries… die in their infancy and depressions… feed on themselves and leave a hard and seemingly immovable core of unemployment…”(2)

Financial markets, at least, do not expect this problem to go away for at least as generation. That makes, as I have written, this current policy debate “the most important policy-relevant debate in economics since John Maynard Keynes’s debate with himself in the 1930s…”

I have heard eight different possible causes advanced for this secular fall in safe interest rates:

  1. High income inequality, which boosts savings too much because the rich can’t think of other things they’d rather do with their money.
  2. Technological and demographic stagnation that lowers the return on investment and pushes desired investment spending down too far.
  3. Non-market actors whose strong demand for safe, liquid assets is driven not by assessments of market risk and return but rather by political factors or by political risk.
  4. A collapse or risk-bearing capacity as a broken financial sector finds itself overleveraged and failing to mobilize savings, thus driving a large wedge between the returns on risky investments and the returns on safe government debt.
  5. Very low actual and expected inflation, which means that even a zero safe nominal rate of interest is too high to balance desired investment and planned savings at full employment.
  6. Limits on the demand for investment goods coupled with rapid declines in the prices of those goods, which together put too much downward pressure on the potential profitability of the investment-goods sector.
  7. Technological inappropriateness, in which markets cannot figure out how to properly reward those who invest in new technologies even when the technologies have enormous social returns—which in turn lowers the private rate of return on investment and pushes desired investment spending down too far.
  8. Increased technology- and rent seeking-driven obstacles to competition which make investment unprofitable for entrants and market-cannibalizing for incumbents.

The first of these was John A. Hobson’s explanation a century ago for the economic distress that had led to the rise of imperialism.(3) The second was, of course, Hansen’s, echoed today by Robert Gordon.(4) The third is Ben Bernanke’s global savings glut.(5) The fourth is Ken Rogoff’s debt-supercycle.(6)

The fifth notes that, while safe real interest rates are higher than they were in the 1980s and 1990s, that is not the case for the 1960s and 1970s. It thus attributes the problem to central banks’ inability to generate the boost from expected and actual inflation a full-employment flex-price economy would generate naturally.(7)

(6), (7), and (8) have always seemed to me to be equally plausible as potential additional factors. But the lack of communication between industrial organization and monetary economics has deprived them of scrutiny. While Gordon, Bernanke, Rogoff, Krugman, and many others have covered (1) through (5), (6), (7), and (8) remain undertheorized.

In general, economists have focused on a single individual one of these causes, and either advocated policies to cure it at its roots or waiting until the evolution of the market and the polity removes it. By contrast, Lawrence Summers(8) has focused on the common outcome. And if one seeks not to cure a single root cause but rather to neutralize and palliate the deleterious macroeconomic effects of a number of causes working together, one is driven—as Larry has been—back to John Maynard Keynes (1936)(9):

A somewhat comprehensive socialisation of investment… [seems] the only means of securing an approximation to full employment… not exclud[ing] all manner of compromises and of devices by which public authority will cooperate with private initiative…

Summers has, I think, a very strong case here. Ken Rogoff likes to say that nine years from now nobody will be talking about secular stagnation.

Perhaps.

But if that is so, it will most likely be so because we will have done something about it.

 

Notes:

(1) For considerably overlapping and much extended versions of this argument, see J. Bradford DeLong (2016): Three, Four… Many Secular Stagnations! http://www.bradford-delong.com/2017/01/three-four-many-secular-stagnations.html; (2015): The Scary Debate Over Secular Stagnation: Hiccup… or Endgame? Milken Review http://tinyurl.com/dl20170106m

(2) Alvin Hansen (1939): Economic Progress and Declining Population Growth American Economic Review https://www.jstor.org/stable/1806983

(3) John A. Hobson (1902): Imperialism: A Study (New York: James Pott) http://files.libertyfund.org/files/127/0052_Bk.pdf

(4) Robert Gordon (2016): The Rise and Fall of American Growth http://amzn.to/2iVbYKm

(5) Ben Bernanke (2005): The Global Saving Glut and the U.S. Current Account Deficit http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/

(6) Kenneth Rogoff (2015): Debt Supercycle, Not Secular Stagnation http://www.voxeu.org/article/debt-supercycle-not-secular-stagnation

(7) Paul Krugman (1998): The Return of Depression Economics http://tinyurl.com/dl20170106r

(8) Lawrence Summers (2013): Secular Stagnation http://larrysummers.com/imf-fourteenth-annual-research-conference-in-honor-of-stanley-fischer/ ; https://www.youtube.com/watch?v=KYpVzBbQIX0&ab_channel=JamesDecker; (2014): U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound http://link.springer.com/article/10.1057%2Fbe.2014.13; (2015): Rethinking Secular Stagnation After Seventeen Months http://larrysummers.com/wp-content/uploads/2015/07/IMF_Rethinking-Macro_Down-in-the-Trenches-April-20151.pdf;(2016): The Age of Secular Stagnation http://larrysummers.com/2016/02/17/the-age-of-secular-stagnation/

(9) John Maynard Keynes (1936): The General Theory of Employment, Interest and Money https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch24.htm

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The once and future measurement of economic inequality in the United States

Posted on by Emilie Openchowski
A man drives a golf cart from his house to his golf club as a group of landscape workers take a break in Vista, California.

A slew of research into economic inequality replete with serious looking graphs may give the impression that measuring inequality in the United States is a solved problem. This is misleading. Inequality is still measured incompletely because existing U.S. government statistics do not attempt to match their estimates to the National Income and Product Accounts. NIPA is the source of the most reported and well-understood economic statistics such as the nation’s Gross Domestic Product and quarterly GDP growth figures.

Because existing estimates of economic inequality are not pegged to NIPA, they don’t account for all sources of income. They may exclude, for example, fringe benefits provided by employers such as employer-provided health insurance and retirement benefits, government transfers such as supplemental nutrition assistance or the child tax credit, government services such as public education, and tax expenditures such as the home mortgage tax deduction and tax breaks for employer-provided insurance. These exclusions, big and small, make many existing estimates of inequality fundamentally incomparable to our most well-established measures of economic growth.

This wasn’t always the case. The Office of Business Economics—the precursor to the U.S. Department of Commerce’s Bureau of Economic Analysis—compiled inequality data decades ago, starting in 1947 and ending in 1971. These estimates were relatively simple: They divided households into five quintiles and reported the accumulated income of each quintile. The bottom 20 percent of households, for example, held 5 percent of all personal income in 1956, while the top 20 percent held 44.9 percent of all personal income. (See Figure 1.)

Figure 1

Inequality remained fairly stable during this period. Because economic prosperity was broadly shared from the end of World War II until the early 1970s, the distribution of income rarely changed. As one researcher noted, “the relative distribution of income has remained virtually constant over the post-war period.” Unfortunately, these estimates were discontinued due to a lack of resources at an inopportune time: Income inequality would increase slowly starting in the 1970s and more rapidly in the succeeding decades.

Today, with inequality increasing, there is rekindled interest within the Bureau of Economic Analysis in measuring inequality alongside growth. A new paper in the BEA’s Survey of Current Business attempts to reconstruct measures of inequality that are pegged to NIPA, similar to those compiled in the middle of the 20th century. The team of current and former government economists—Dennis Fixler at the BEA, David Johnson at the University of Michigan, and Andrew Craig and Kevin Furlong at the BEA—merge the Current Population Survey and the Consumer Expenditure Survey to construct estimates of income for each quintile of the U.S. population between 2000 and 2012.

They find that the top 20 percent now hold about 52 percent of all personal income. Moreover, the paper moves beyond the BEA’s older efforts in key ways. The authors provide estimates of inequality for regions of the United States and for each state individually, as well as the change in inequality between 2000 and 2012. (See Figures 2 and 3.)

Figure 2

Figure 3

In the paper, “Toward National and Regional Distributions of Personal Income,” the four authors also decompose personal income by category, showing how Social Security income, Medicare benefits, and more are shared by each quintile of the income distribution. They find, for example, that 86 percent of all dividend income flows to the top 20 percent of U.S. households, highlighting the near-monopoly that upper-class households have over financial assets.

There are limits to what can be done with the tools that are currently available. Respondents to the surveys under- and over-report income, for example. Some components of income are missing entirely and must be estimated based on what clues are available. The two surveys used are linked using a procedure that introduces some error into the estimates. Other estimates of inequality show that it is important to break out the top 10 percent of income earners or even the top 1 percent of earners, and these groups are not addressed in this paper.

Another approach, by Thomas Piketty at the Paris School of Economics and University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman, uses tax data to look at very high earners, showing that the top 1 percent and even the top 0.1 percent have been the foremost beneficiaries of recent increases in inequality. Ultimately, better surveys and more interagency access to U.S. government administrative data is necessary to address the challenges of providing better inequality statistics.

The ability to look at the geographic distribution of inequality and at slices of income within different income groups teases the possibilities of a more robust project to disaggregate the National Income and Product Accounts statistics that are currently the most referenced statistics of economic progress in the nation. Devoting federal resources to the project could allow us to track inequality not only by income bands, but also by age, geographic location, gender, ethnicity, and type of income.

Must- and Should-Reads: March 29, 2017

Posted on by Brad DeLong

Interesting Reads:

Must-Read: Noah Smith: The Blogs vs. Case-Deaton

Posted on by Brad DeLong
Noahpinion The blogs vs Case Deaton

Must-Read: Noah Smith: The Blogs vs. Case-Deaton: “Selection effects are very real…

…But as Zumbrun points out, once you lump all white Americans together-which totally eliminates the education selection effect-the mortality increase remains. Just look at this graph from the 2015 paper…. So why are people tripping over themselves to launch attacks on Case & Deaton? It’s pretty obviously politics… excerpts from [Malcolm] Harris…. The critiques of Case-Deaton are overdone. Maybe they should have focused less on disaggregating by education, and more on disaggregating by gender, age, and region. But those are quibbles. The main results are real and important.